The Financial System Is Broken And Its Time For A Change

Oftwominds.com is honored to present a profoundly forward-thinking three-part essay by frequent contributor Zeus Yiamouyiannis. It is easy to focus on the current financial dysfunctions of the global economy, but the real work is in designing alternatives. This essay is devoted to that work.

Part 1: Introduction and basic principles

“The current global financial unravelling and meltdown has brought us face-to-face with a stark and uncomfortable truth: with all its reassuring numbers, our financial system is a human system, based on human frailties and desires, resting almost completely upon imaginary notions of worth. Historical financial innovations have led us piece by piece into a phase shift from ownership of real assets to control of concocted wealth that no longer has a credible authoritative connection to productivity, life needs, or the day-to-day requirements of commerce.” (http://www.oftwominds.com/blogoct08/positives3-10-08.html)

I wrote this three years ago in October of 2008. Since then the only thing that seems to have changed is the intensity, complexity, and ferocity with which global agencies are trying to pretend and extend past our insolvent, incoherent, and fantasy-riddled global financial system. I continued:

“From the bartering of material goods and services, to the convenient exchange of dollars no longer backed by anything but faith, to “creative” financial vehicles that leverage essentially symbolic wealth to an infinite degree, we have progressively departed from the foundation of what was once considered financial worth—the competent stakeholdership, ownership, and stewardship of real property involving labour, earnings, investment, risk, reward, and responsibility. In other words, we’ve reached the “asymptote,” the mathematical limit whereby even an infinite increase in concocted value produces no growth of worth on the real level.”(http://www.oftwominds.com/blogoct08/positives3-10-08.html)

In this current essay I outline some possible ways to press onward from this stalemate with reality. First we must be willing to pierce economic illusions and to draw out the differences between what we claim we want and what our actions actually support.

Everybody says they want free enterprise in a democratic market exchange economy that seeks to maximise life engagement, enjoyment, responsibility, and fulfillment. So how come we are currently stuck with the opposite? How could the laziest, least inventive, most crony-connected, monolithic, and parasitic companies siphon up the cash, feast on the bailouts of the industrious, and make it more difficult for us to live a good life? It was not supposed to happen this way, but it did, and it continues to persist.

Part of the problem is that “prosperity” has been degraded and falsified and been made synonymous with getting your “goodies”–profits, entitlements, benefits, windfalls, special favours, and bonuses. Real prosperity created from effort has withered and needs to be revived. We can see with our own eyes that productivity, ingenuity, diversity, and diligence have been either given lip service or taken a good beating in the face of rewarded fraud and self-indulgent consumption. This needs to be inverted.

We can also notice how this latest mutation of capitalism has grown to encompass the global system, since most citizens from Greece to America to China fell for the “too good to be true” hype, including promises of never-ending stratospheric government benefits and forever skyrocketing housing prices and stock valuations. “Don’t work for a living. Let your money work for you,” became the new mantra. Contributing to society, applying oneself, and caring for others became quaint notions for old-fashioned dupes.

Now that we have tasted the fruits of this false prosperity and experienced the consequent world-wide indigestion, what ought we do? I assert that whatever we do requires a different foundation that rewards and supports productively adding to economies (“making a living”) and discourages using the levers of society to parasitically subtract from productive growth (“making a killing”).

Making a living does not need to be eking out survival at an underwhelming job. It can and should mean literally what it says— “making a life” with all the most energetic and interactive tools at our disposal. Making a killing ought not be the “I’ve hit the jackpot” bounty that people pretend either. It can and should mean what it literally says— “killing the economy and people’s well-being.”

Working premises:

* Free enterprise means free to try a new venture, to invest, to save, and to take risks, to protect against risk, to be rewarded financially by the success of your enterprise, and to be rewarded educationally and morally (with learning and character-building) from failures.

* Applied effort produces value not smoke and mirrors. Applied effort can include applied manual work, intelligence, creativity, organisation, and learning. Applied effort should be aware of its impact and lend something into the world that enables greater capacity.

Applied effort can even be things like constructive play that brings fulfillment and enjoyment. Physical health requires applied effort in the form of exercise and dietary discipline. Music and language fluency requires practice. Even “effortless” enlightenment takes great effort. The lives of ostensible masters like Jesus and Buddha were anything but easy. Why should markets be any different?

* Money does not do work; people do work. Money, properly understood, is a store of effort (i.e. what pensions are supposed to be) or an exchangeable measure of effort. When money is invested in viable, productive enterprises, it adds the backing of successful effort to a promising enterprise. Thus, one gains a stake in promoting something useful for surviving or thriving and the consequent rewards of growth—not just financial, but also environmental, social, and so forth. Money has no intrinsic worth or merit. It serves and is accountable to other ends

* Stakeholdership means “invest the money, effort, commitment and stay” rather than “take the money and run.” Any healthy enterprise must have people that are fully invested in its success and directly affected by its failures. Playing with other people’s money, high-frequency trading, and other examples of exploitation and abuse of honest effort are the opposite of this.

* Sound public money is the only real money; private fiat currency is purely counterfeit money. Sound public money is backed by the productive efforts of its citizens. It should be managed on behalf of those citizens and their well-being.

Private entities, including the Federal Reserve, who want to create their own private funny money through fractional reserve, leverage, and other forms of fiat backed by nothing are free to do so as a medium of exchange between private parties.

However, this private currency should not be redeemed, backed, mixed with, or supported in any way by public money. Leverage is literally “money for nothing” (and from nothing).” In addition, leverage, by artificially expanding debt-money, drastically inflates prices of even necessary goods making it very difficult to make a living. (http://market-ticker.org/akcs-www?post=195434)

* When something seems to be too good to be true, it probably is. Quick and easy money, when one looks behind that curtain almost always involves deception, exploitation, extortion, or some other abuse or shortcut. This makes easy money damaged goods associated with sweat shops, repressive regimes, environmental pollution, and other practices that strip value and health from our world. This where our own sense should come in. Twelve per cent return on a AAA rated instrument in a bubble economy with record low interest rates? We should know better. It’s fake or it’s exploitative.

Given these principles and working premises, it is important to note that the current national U.S. economy and global economies do not make any meaningful distinction between healthy and harmful growth. The proliferation of economic cancers embodied in exotic derivatives or housing bubbles are treated as if they were of the same nature as an expanding small business that adds jobs to a community.

And yes, financial cancer, like biological cancer, does grow very fast as it consumes the economic body, but it destroys that body and should be calculated as a negative in proportion to how much of the productive economy it is destabilizing, dismantling, or replacing.

Without a distinction between productive activities and parasitic activities there is no viable way forward economically. This three-part essay (“Part 1: Introduction”; “Part 2: Making a Living”; and “Part 3: Unmaking a Killing”) will begin to make those distinctions and provide recommendations on increasing healthy productive capacity and eliminating harmful parasitic activities.

If the sick-care industry is booming due to a dramatic increase in obesity and diabetes in the population, this ought not boost the GDP if one is interested in macro indicators reflecting the health of the economy and its people. You would not treat a cancer patient by considering cancer cells on par with healthy ones, and you should not attempt to heal economies without analogous distinctions.